Why CONSOL Energy is becoming a natural gas business operator

CONSOL Energy (CNX) has strategically positioned itself by increasing its exposure to natural gas business and reducing its exposure in its traditional coal business. In the past few years, it has acquired natural gas assets and monetized coal and other non-operating assets. In December, 2013, CNX acquired the gas drilling rights to approximately 90,000 contiguous acres from Dominion Resources (D). The company anticipates that more than 50% of the acres will have wet gas, which is conducive to producing natural gas liquids (or NGLs). The company attributed the acquired assets to both the Marcellus Shale and the Upper Devonian formations in the storage fields. CNX paid $91.24 million in 2013 related to this transaction.

In September, 2011, CNX Gas Company (a joint venture of CNX and Noble) and Noble (NBL) formed CONE Gathering LLC (CONE), a joint venture established to develop and operate the gas gathering system needs in the Marcellus Shale play. CNX contributed assets worth $119.7 million and Noble contributed cash of approximately $67.5 million.

From 2012 until November, 2013, CNX’s completed transactions produced $387 million in cash and notes receivables. The transactions are expected to generate at least an additional $500 million in value. The most significant of the sale-off transaction for CNX was the disposition of five thermal coal mines in West Virginia in December, 2013, for $850 million. With the sale-off, CNX sold Murray Energy total coal reserves of 1.1 billion tons, and production of approximately 30 million tons.

CNX has indicated that there could be more sale-offs of the assets in the future, which it would identify as non-core. Prominent among them are the eight coal blocks in the Illinois Basin consisting of 1,082 million tons of reserves and resources. It may also look into disposing the Cardinal States Gathering assets in Virginia, Kentucky, and West Virginia. The assets consists of four interconnected pipelines, a treating and compressor station (Grant Station) and a downstream pipeline connected to the Columbia Pipeline and East Tennessee Pipeline. The system has ~112 miles of pipeline with 250 million cubic feet per day capacity. The other potential sale-off is the CNX Baltimore Terminal. CNX exported 35.8 million tons to 21 countries in the past three years from this terminal.

According to CNX, the total realizable value from these sale-offs would be ~1 billion over the next five years.

CONSOL Energy Inc. (CNX) is a producer of natural gas and coal. Other companies operating in the coal industry are Arch Coal Inc. (ACI), Alpha Natural Resources Inc. (ANR), and Cloud Peak Energy (CLD). Some of the major names in the natural gas sector are ExxonMobil (XOM), Chesapeake Energy (CHK), and Devon Energy (DVN). Some of these companies are part of the SPDR S&P Metals & Mining ETF (XME) and the Vanguard Energy ETF (VDE).

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